In my corner of the web, the big conversation these days is about a guy named Michael Arrington and his new $20 million Internet start-up fund. Arrington has made a name for himself (both good and bad) as the founder and voice behind the start-up world’s go-to blog, TechCrunch. Over the years, TechCrunch hired a CEO and eventually got acquired by AOL. But Arrington has always been its face, and its heart and soul.

Arrington is a controversial guy. This was true during the earliest days of TechCrunch and it’s truer now. And that’s no mean feat. It’s hard to be loved or hated by a lot of a people for that long in the age of short attention spans. I think he would agree that one of his secrets to success has been his willingess to push the envelope, have public smackdowns, and occasionally come off as an asshole. That takes a certain intestinal fortitude (that, frankly, I wish I had more of). On the Internet, being that kind of a brand is pure gold.

Even though Arrington has been informally investing for years, the ethics around a journalist investing in the very kinds of companies he covers (and, equally important, those he decides not to cover at all) is certainly worth a long, hard look.

But if you’re part of the Internet start-up world, that’s not the big story here. The big story is about power and popularity in the age of personal branding.

Several of the biggest Venture Capital players in the Valley invested in CrunchFund, including folks from Sequoia, Redpoint, Kleiner Perkins, Accel Partners, and Andreessen Horowitz. Those are some big names who, combined with some well-known angel investors, rounded up the $20 million for CrunchFund.

For these funds, putting in a small piece of $20 million into another fund is unusual. First, it’s a small amount of money. When someone at Accel or Kleiner sneezes, $20 million comes out. Second, they aren’t even investing this money directly into a start-up – which is their core mission. For big valley players, putting a few bucks into another fund (run by a guy with very little formal experience in the investment arena) hardly seems worth the effort it takes to read and sign the paperwork.

So why are major VCs wasting their time putting a few bucks into a little fund with no track record?

Because the very Internet ecosystem that they funded and helped to create has changed all the rules.

There are a couple of key trends you need to understand to really get what’s happened in the start-up world. First, it takes a lot less money to build a compelling product than it did during the original Internet boom. A couple of kids in their undershorts can build a site or app that can easily scale to serve millions of users. Second, since the Internet industry has matured, there are a lot more former entrepenuers who are looking to rotate some of their sizeable earnings back into other start-ups.

Start-ups need less dough and there are more people looking to write a check. Big venture capital firms can’t sit back and wait for entrepreneurs to nervously show up with their Powerpoint presentations, because it may not always happen in the new start-up marketplace. So these funds have moved downstream and are making more and more small investments in very early stage companies in an effort to essentially buy an option to invest in later rounds should things go well.

So that explains why big VCs make smaller and earlier investments. But why are they so anxious to co-invest a few bucks into Michael Arrington?

Because this is the age of the personal brand. Tools like blogs, Twitter and Google+ have enabled individuals to build their personal brands and their following like never before. Pretty much everyone in the start-up world reads TechCrunch. And Michael Arrington is a bigger brand than TechCrunch.

People who are starting up their new Internet companies are just like the rest of us. They respond to brands. And like the rest of us, they are swayed by public relations and the size of a brand’s following. Arrington has a big brand on the playing field where Internet start-ups are born, so he’ll see deals. And the bigger players are desperate to see those deals too.

But Arrington doesn’t have a track record as an investor. But he only has a small fund. But the skills it takes to cover an industry don’t necessarily translate to those required to be good at investing.

Yes, but he’s got a lot of Twitter followers.

This personal branding barely mattered in the past. The big venture firms had strong track records and so much public notoriety that they knew they’d see the best deals.

Today, plenty of VCs at big firms blog and tweet about the topic of investing and the Internet industry on a regular basis. They probably like the attention. But in this age where personal brand power can trump insitutional brand power, they also sort of need the attention.

And maybe they feel they need to be connected to people like Michael Arrington. There’s not much money at stake, there’s some additional dealflow that could come their way, and they don’t have to worry about suffering any of the journalistic consequences that might arise for those who don’t participate in the fund.

When I first started blogging back in the 1990s, I got inbound links from several newspaper sites on a single day. I also got an inbound link from an already accomplished blogger named Jason Kottke. Kottke sent me fifty times the traffic than all the newspapers combined. That was the beginning of the age of the personal brand. And now it’s bigger than ever. If I was about to launch a Mac product, I’d much rather have an inbound link from John Gruber than any other publication on the web. When I want to market something on the Internet, I think of the indivudual people I want to tell. Those individuals are the brands that matter.

So Michael Arrington has a big personal brand and is dipping his toes into an increasingly crowded market of start-up investors. And the biggest venture capitalists want to see the same deals Arrington sees. Can he transition his personal brand from being a controversial journalist to creating a solid early stage fund?

Who knows? If it works, his brand will be bigger than ever and the power in the venture world will shift even more dramatically towards the individual player. If it flops, the VCs will only have lost some loose change and Mike can always go back to being the biggest (and now more controversial than ever) name in tech journalism

Recent Confessions

My name is Dave Pell, internet superhero. This blog provides an addicted insider's account of what's happening to us in the era of the realtime, social web. You can read more about the site, grab the rss feed, follow me on twitter, join the Facebook page, or get email updates.